Higher oil output, reduced imports sustain Nigeria’s current account surplus in Q2 at 0.4% of GDP

Nigeria recorded a current account (CA) surplus of 0.4 percent of GDP in Q2 2017, representing improvements for the third consecutive quarter, according to estimates by analysts at Renaissance Capital in an update note published Monday, October 30, 2017 seen by Bussinessamlive.

The Q2 2017 CA surplus, an improvement from a deficit of 0.4 percent of GDP a year earlier, is however less that the 1.1 percent recorded in Q1 2017, representing a 63.6 percent drop quarter-on-quarter.

The RenCap analysts attributed the sustained CA surplus to higher oil production, an increase in current transfers and a decline in imports.

They said due to the restoration of a trade surplus, on the back of rising export revenue and subdued imports, current transfers – mainly made up of remittances and the biggest source of inflows after exports – saw a strong 25 percent year-on-year increase in Q2 2017 to $5.4 billion against a 16 percent contraction in Q2 2016.

This according to them helped mitigate the 70 percent year-on-year increase in net service payments to $3.3 billion.

Nigeria’s export revenue increased by 17 percent year-on-year to $10.8 billion in 2Q17, compared to a 29 percent year-on-year decline a year earlier. This improvement was in part due to a recovery in oil production to an average of 1.86Mb/d in Q2 2017, from 1.60Mb/d in Q3 2016, which is the lowest production in this analyst’s Q206-Q217 data series.

The pick-up in production in Q2 2017 was mainly due to production of about 200,000 b/d from the TransForcados pipeline coming back online in June following repair work, and the tripling of the budget for the amnesty programme for Niger Delta militants.

The analysts also identified reduced imports as another reason for the improved CA surplus in the review period. Specifically, they noted that imports fell 22 percent year-on-year to $8.7 billion in Q2 2017, compared to 15 percent year-on-year decline a year earlier.

“Imports have been falling – in year-on-year terms – for nine consecutive quarters,” they noted, saying the decline is due to a combination of FX restrictions – including the de facto ban on 41 imports – and a sharply weaker naira in the FX markets where households and businesses could access FX, such as the black market.

“Imports are showing a moderate recovery after bottoming in Q416/Q117. We think this pick-up is mainly due to improved FX availability and less to strengthening demand,” they noted, forecasting a smaller CA surplus of 1.8 percent of GDP in 2018 vs 2.4 percent estimates in 2017.

A moderate import recovery implies smaller 2018 CA surplus, they opined adding that the recovery in oil production has arguably helped improve consumer confidence.

“While we expect Q3 2017 CA data to show a bounce, as oil production bottomed a year earlier, we see limited upside in export revenue in 2018. This because we expect oil production to stabilise at the levels it recovered to in 2017 (1.9Mb/d in 2Q17) and for the price to also stabilise at c. $55/bl,” they said.

On the import front, the analysts expect the pick-up to be tempered by a consumer that remains challenged.

“We think inflation is likely to remain in the low double-digits in 2018, which is negative for real wages. We also do not expect a meaningful wage increase from the government, despite the forthcoming 2019 elections, because it is revenue constrained,” they pointed out, adding that the last time the Federal Government imposed a significant wage increase was ahead of the 2011 elections, when the oil price was still lofty.